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New to PT, need advice on sell / keep

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  • New to PT, need advice on sell / keep

    Greetings everyone,
    So glad to find this forum and I've been browsing in this forum every day for 2 weeks now. I have to say it is awsome and inspiring with valuable gems everywhere! Wish I had access to these gems before my first foray into IP on 2003, but hey regretting won't change anything so I decide to only look at the lessons I need to learn

    At the moment my wife and I are considering to sell one of our IPs. But we're still torn between selling it or keeping it and refurbishing it (it's
    getting a bit dated and tired) in the hope to increase the rent - not so sure about this in the current rental market. Yesterday our long-term tenant decided to end the tenancy at the end of this month - so the timing is perfect for either selling or refurbishing.

    I now look at this property as a bit 'unwise' investment as it is not +CF pre-tax and the capital gain is not that strong either, eventhough the location seems pretty good and close to all amenities. Obviously a valuable lesson to learn....

    We are not actually in a position where we must sell, but, looking at the property cycle (was at Kieran's presentation at the last expo ) we want to be in a good position to acquire more IPs (this time, strictly +CF ones!) in the next few years.

    The property is a 2brm unit with a car port (one in a block of 4) at Louvain Ave. Three Kings/Mt.Roskill.

    Purchase price 185k
    Mortgage 185k, Interest Only, fixed for 5 years at 6.9%
    Registered Valuation (May 2003, at time of purchase) $195k
    Registered Valuation (May 2005) $215k
    Rent $260pw
    Property Management 8%

    Prior to the purchase at 2003, I setup an LAQC and a family trust. All IPs are bought under the LAQC, and the family home is still in gifting process to the
    trust. However, upon purchasing this IP at Louvain Ave. with 100% mortgage, the family home had to be used as collateral... which kinda defeats the purpose of setting the family trust . That's another reason why we consider selling... to quickly release the collateral.

    As a newbie, I'd really like to get some advice from the forumites to make a well informed decision... If you were in my position, would you sell or would you keep it?

    Any comments and advice would be appreciated... thank you!

    What you think of me is none of my business - T.Cole-Whittaker

  • #2
    Hi Andre, my opinion would be to make the repairs/refurbish, and then look to hold. It really depends on what you want to get from your ppty, and how bouyant the market is in that area.

    I would also research what other similar units are renting for in the area, talk to PM, to see if rents can be raised after refurbishment. I would also get a valuation (from a reg valuer) and agents apprasial after refurbishment and see if there is any good cap gain you may want to take if you sell.

    Even if you lived in the unit money would need to be spent at some stage to repair and or refurbish.

    Hope this hepls.

    Kiwi Investor - Assistant Valuer
    QLD Real Estate salesperson qualified
    'Do as I say not as I do'


    • #3
      Be aware that the property market seems to be returning to "normal".

      By normal I mean:
      - Plenty of houses to rent
      - Good tenants harder to find
      - Interest rates > 8%
      - 60-90 days to sell a house

      So can you survive the downside?
      - rent falls to $220pw
      - interest increases to 8%
      - have to renovate just to get a tenant
      - your day job moves to China

      The last thing you want is a friendly call from the bank!
      Since you're not paying any principle off,
      you must be depending on capital gain....

      Having been so depressingly negative - it's a great central area!
      The rent sounds cheap!

      I tend to renovate, hold and pay them off.
      The three most harmful addictions are heroin, carbohydrates and a monthly salary - Fred Wilson.


      • #4
        Hi zensei,

        Welcome to PT, I think I would probably renovate and re value, get a tenant that is willing to fix for 12 months and then look at managing it myself.

        Budget maybe $7000-$8000 for renovations depending on whats needed.

        Bob Jones always say's that the difference between a bad investment and a good one is about 5 years.

        Lastly if you do decide to sell look to buy another property thats cash pos and settle the same day you sell then you will not have to give up that mortgage rate of 6.9%.

        Or sell and keep the mortgage, secure the mortgage against the money.

        So the bank puts the money on term deposit for you at 6.5% over 1 month and you can go looking for the next prop to buy with cash.

        What ever you do be happy about it, and best of luck.



        • #5
          Hi Andre,

          I will try to keep this brief as I have to go out shortly.

          I think the answer to your q re should you keep or sell is more likely to be found after considering your full financial position (ie income, outgoings, level of equity etc,etc) and your current borrowing capacity.

          I say this as I am reluctant to see any investors sell property unless there is a very good reason (for example: to increase borrowing capacity).

          So if your borrowing capacity is limited to the point of stopping you buying any more property/ies then I think you should sell Louvain and get pre-approved finance so you are ready to buy again. However if you have a good ability to borrow then you might as well keep it!

          If you are not sure about your borrowing capacity then Private Mail me with details of your financial position and I will make a quick assessment of your current borrowing capacity for you.

          Also you may be a bit confused about the purpose of your family trust based on your comments as follows:
          upon purchasing this IP at Louvain Ave. with 100% mortgage, the family home had to be used as collateral... which kinda defeats the purpose of setting the family trust
          The fact that you have used your family homes equity to support the mortgage on your rental doesn't defeat the purpose of selling your family home into a trust.

          The fact is that most property investors need to rely on equity in the family home to support their property investing activities for many years. So, like you, many investors will let the bank use the equity in the family home via a mortgage on it.

          If you hadn't put your family home into a trust, until you no longer need to rely on the equity to support your investment properties, then you would only need to sell it to a trust in the future (most likely at a much higher value than it is worth today).

          So don't fret about the bank having a mortgage on the family trusts home. I think you have done the right thing selling it to the trust and yes in the short to medium term it is not fully protected from all creditors (ie it is protected from all creditors except the bank that has a mortgage on it) but in time your investment properties should increase in value enough to release the family home from the bank and own it mortgage free.

          Hope this helps!
          Kieran Trass


          • #6
            Wow thank you for the quick and informative reply folks... really gives me that warm feeling in the heart

            I guess the next step for me will be discussing it with my PM (not the beehiveey one, mind you) and look at what can be done as far as renovation & increasing the rent go.

            Steve, thanks for the great advice... I never even think about the tricks you mentioned before! Btw I love your posts (esp http://www.propertytalk.co.nz/postt2832.html ), truly inspirational to say the least!

            Thanks Kieran for your reply... will try to PM you later from home - still in the office at the moment and don't have all the data

            Have a great weekend everyone!

            What you think of me is none of my business - T.Cole-Whittaker


            • #7
              Well Keiran beat me to most of what I was about to say but I will still try anyhow.
              We were in a similar situation when we moved back from Australia several years ago. Should we sell our prime location own house in Australia or hold onto it.
              - In the previous 3 years of owning it the value had skyrocketed.
              - I had to analyse our current financial situation and work out whether it impeded any future investing we might decide on.
              At that point in our life the answer was was unclear. We had sufficeint borrowing ability to purchase more, but selling would also enable us to build a nice house here in NZ.

              What did we do?
              We prepared it for sale but only if we got a good price as we were keen on holding it too. We had signed up a good tenant on a 12 month lease and had several offers from people who wanted to buy it. In the end we sold in a hot market privately for a very reasonable price tenant included.

              Obviously the answer of Sell Vs Hold is always tricky. If you can afford to hold quality properties long term you will do well. Otherwise if it is impeding your investing cut your losses Pay the IRD depreciation clawback and move on. Although If you are like most Mum and Dad investors and likely to only buy 1 investment property in your lifetime then it may not affect your future investing.

              Good luck and keep us posted.


              • #8
                Thank you for all your great replies and encouragement... highly appreciated. My wife and I have decided to keep the property and refurbish it. It does seems to be the more sensible option at the moment.

                Just got Graeme Fowler's book last Saturday, just got to read the first few chapters and it's all very very good! Guess I'm back to this "thirst to learn and itchin' for action" mode... hopefully will be able to start analysing deals soon and go full steam ahead! Will keep you all posted

                Btw are there many active members of APIA lurking in this forum?

                What you think of me is none of my business - T.Cole-Whittaker


                • #9
                  Originally posted by zensei
                  Btw are there many active members of APIA lurking in this forum?
                  I am, and I know few more are on on this forum too, including our lifetime member Kieran and Andrew King (the current president of APIA).

                  The June meeting tomorrow night will be about credit check, a talk by Baycorp. If you and your wife are not APIA member yet but interested in attending the meeting, PM me.


                  • #10
                    There is another aspect which has not been mentioned. Selling and then buying another property has its own costs. Not just real estate agent commission, finance fees, inspection fees and legal costs (which should of course be taken into account) but also your time and risks.

                    Don't know about others here but we have looked at a lot of properties before buying, and investigated some in depth. It's not that easy to buy a good IP, at least not in the parts of Wellington we look at. It is hugely time consuming. Say goodbye to a chunk of each weekend.

                    As far as risks go, the devil you know is a fairly known quantity, as knowledge is accumulated over time. A new property, despite inspections, LIMs etc, still has unknowns.

                    Not saying that one should never sell, just that both tangibles and intangibles can be taken into account in the decisions.